Issues around life interest in a property

[Bouffe]

I've just seen another thread which mentions leaving a life interest in a property to a partner, while leaving the property itself to children and it has revived some concerns over my own situation.

My partner and I met 21 years ago when we were in our early 40s. We're not married. Neither of us have children but both of us have nieces and nephews whom we'd like to help out in our wills. We live in my partner's lovely house which he owned outright when we met. I pay half of all bills, including maintenance and improvements, with the money going into a joint account. For the first twelve years of the relationship I rented out my old home on the basis that if we split up I would need somewhere to move to. A few years ago I sold it, invested the proceeds and haven't had to touch them. I offered, when I sold my previous home, to buy a share in my DP's property: I could have afforded 50%. My DP declined.

We both work and have our own pensions and investments and will shortly retire. We're both drawing up wills at the moment and he proposes leaving me a life interest in the house should he die first, with the property going to his niece and nephew on my demise. It's a four-bedroom house in a half-acre garden and over the last decade I'd guess we've spent around £10k pa at least on maintaining the house and garden. That will go up as we get older and can't do so much work ourselves.

I can't imagine being here, on my own, in my 80s. I've asked my DP about whether I'll have to bear all the maintenance costs and he's pointed out that I'll be living here rent and mortgage free, so £10K pa for maintenance will be cheaper than renting.

Can anyone explain the rights of a person left a life interest in a property? I think if it means being trapped here spending money on the maintenance of the property for his niece and nephew's benefit, then I would need to sort out some form of alternative provision for myself.

In the light of the above, does anyone have any observations on someone in my position paying half the costs of, say, building a new double garage and workshop with a studio room above it? This is a project my DP has proposed and it's likely to cost somewhere in the region of £50k. I was expecting to contribute half until a friend casually pointed out that it will add to the property's value but I won't ever be in a situation to get my money back. I'd been thinking about the benefits of a larger garage we could get both cars in, plus space for an occasional guest in the studio. But my friend does have a point...

We have similar in place.

OP, if you spend £5k a year on the house, I would think you can afford a grand or two to get legal advice and set up wills to carry out both your wishes.

For example these is a difference between a right of residence and a life interest. I know this because Mum had her own house and left it in the will to me but with a right of residence for her partner. He can live there as long as he likes but can't sell it and use the money to buy somewhere else, as you would with a life interest.

Also, it ends if he marries, cohabits (so if he dies I don't have to face turfing out a little old lady with nowhere to go) or moves out (e.g. to care home).

A good STEP solicitor should help you both cover all possible eventualities - even ones you hadn't thought of.

And they can advise what sort of position marriage with a good pre-nup would leave you in. Whether it's even worthwhile considering at all depends on pensions, tax regime, your own needs etc and DP may well just decide no anyway, particularly as you do have your own resources.

The thing is not to rely on someone else's will remaining unchanged after you die.

@FictionalCharacter Have to say I lay awake thinking about this for some time last night. I've probably, over the years, put at least £80k of my capital into various projects/ improvements, going 50:50 with DP. Plus smaller ongoing outlays on maintenance and the replacement of things as needed. The major outlay was in the noughties, when we were getting the house up to scratch and building costs were considerably lower than they are now. I used the rent money to fund my share of those projects.

As for the idea of paying rent, suggested by MrsDotCotton, it occurs to me that I would have more rights as a lodger — and also none of the expectation that I'll work many hours in the garden, or act as builder's mate on projects, or decorate the house from top to bottom. I've probably contributed far more in labour than I would have paid in rent. But I don't think of myself as being in a relationship based purely on finance and 'rights'...

Lots to think about. I'm not complaining: my investments have done okay. I think, though, I've been in the habit of discounting the labour I put into this place. I suppose there's a small part of me that's upset that after more than 20 years of knowing me he doesn't trust me to do the right thing — but then I've seen how badly people behave around issues of inheritance and I do understand the desire to try to ensure one's wishes are adhered to.

Lots to think about: feel like I'm having to get real — when I thought I was already rather more realistic than many people.

Has your DP factored in inheritance tax on his estate? My BIL has right of residence in MIL's old house but it was still assessed for inheritance tax when she died. Luckily (for him) the valuation fell just a few pounds below it or it would have had to paid and he had no way of doing so and would have looked to us to pay it, as we had paid for the funeral and many other costs. You are not married to DP so can't make use of passing the IHT burden along the inheritance line.

I'd pay up a few hundred pounds to get some good legal advice about your options. You could get proper information on life interests and the ways they can be used. You could talk about any claims you may have on the house if you have proof you contributed to capital projects. Mull it all over at your leisure and then have an honest talk with your DP. After all he has done the same. It's lovely you want to gift your lump sum to your young relatives, having the money sooner than later will be amazing for them.

It sounds like he has your investment capital and/or pension lump sum ear marked for his empire building. Be careful that your money from your own house sale is invested well so that it could actually buy you a place in the future and keep an eye on the property market to assess whether your capital is not being outstripped by house price rises. Sadly, even if someone tells you what is in their will they may change it, not have told you the truth or all their wishes are void if they need to pay care home fees which will whittle it (almost) all away. Your DP's relatives may also be very disgruntled that you are living there if DP dies and they can't get hold of the inheritance - it can all seem like a good solution but be a mess in RL.

Where two people own their homes and decide to live together in one of the properties one will still have a mortgage to pay whilst the other can let it out and hopefully turn a profit. If things are be fair it seems to me that the profit on the let out property ought to be used to maintain the lived in property, but there should be some sharing of the CGT liability on the house rented out.

If OP has sold her property without CGT consequences and she is keeping both the income and capital growth on her investments. Paying £80k towards maintenance costs over 21 years is less than £4k a year - not much more than £300 a month. I wonder how much of that was given out of her rental income those first 12 years?

OP may or may not have an equitable interest in the lived in property due to those contributions - I suspect not based on what has been posted so far. But I think a life interest is not unreasonable given her likely needs and given her retention of her property and its proceeds of sale.

Where two people own their homes and decide to live together in one of the properties one will still have a mortgage to pay whilst the other can let it out and hopefully turn a profit.

This wasn't the situation when we got together. He didn't have a mortgage, I did. I was cautious about throwing my lot in with him for the first couple of years and so rented out my property to pay the mortgage and give me a little extra income, which went towards the cost of improving DP's property. I was fortunate to have very good tenants and so I ended up being a landlord for 12 years, until they decided to move on. I sold my home about eight years ago and absorbed a chunky CGT hit of something like £30k.

It's true that I gained financially from our partnership by having the benefit of most of my income as discretionary spending. But so did he. I pay half the bills, everything from the water rate to food, booze and house and contents insurance. So he saved on basic outgoings while earning a bit more than me.

I pay 50% towards routine ongoing maintenance: exterior painting and cleaning: repairs to paving, fencing, gates, sheds, greenhouse: tree work (it's a large garden with loads of trees) and garden help such as hedge-cutting: gutter cleaning and repair: window-cleaning: routine plumbing and heating repairs: replacement boilers (nearly £4k a couple of years ago): chimney cleaning, roof and stove repairs... I was also, for the 12 years my former home was let, paying for maintenance and decoration of that too, now I come to think of it. And the same with small capital costs: I had to buy two washing machines and a replacement fridge for my tenants during that time, as well as going halves on all the white goods at DP's house.

Impossible to work out gains and losses and values of this and that, but I'd certainly recommend others in a similar situation to have a think about their future security. I'll be okay and will be able to make choices about where and how I live if DP predeceases me, but others may end up stuck in a property they don't really want to live in.

I forgot to add that a quick back of an envelope add-up of capital projects — a two-storey extension, the existing garage (which DP wants to rebuild), major hard and soft landscaping of the area around the house including flagstone terraces and stone walling, creation of a garden room, summerhouse, large garden office, new kitchen and two makeovers of two bathrooms and two cloakrooms come to at least £220k. I've paid for half and that work has greatly increased the value of the house.

You both really need to get this all thrashed out now. You could end up living there and the beneficiaries refusing to maintain the place and you end up paying for improvements anyway.

Also, knew someone who's mother left her the house but her partner had a life interest, everyone was happy with this until her mother died unexpectedly. Fast forward a few years and the poor girl couldn't buy her own property as she had spent her deposit getting repairs done to a house she was unable to live in and had become a drain on her time and money.

These improvement works may gain you an equitable interest in the house but you'd need to speak to a solicitor about that. The stuff in the post before won't earn you an interest.

If a court finds that there was an unspoken understanding that you would have an interest in the house but no agreement as to extent of that interest you'd have such % as is reasonable given the whole course of your dealings with the property.

If much of your contribution was from your rental profits then your claim might be weaker.

But you don't want to take this to a court. Have a chat with him and explain that you want a percentage of the house to leave to your decendants.

There are IHT issues to your estate with lifetime interest. You really need specialist legal advice.

Haven’t RTFT. An elderly relative of mine had a life interest in her second husband’s house with the property eventually going to his adult children. She also had to maintain the property while she was living there.

He also inserted a sentence, however, saying that his wife could leave the property at any time as long as she informed his children in writing. After he died, she soon realized that it was far too big for one person so she found herself a smaller property and moved out about 18 months later. The advantage was that she wasn’t in a chain, she could wait until her purchase was near completion and then let his children know that she planned to move.

It all worked out well, the children soon sold the property.

I'm not planning to go to court, I might as well just burn £50 notes on a bonfire.

I'd like to think that we'll have many happy years together — although right now I'm thinking back to my 40-year-old self and wishing she'd thought twice about handing over such large chunks of money. But that's water under the bridge. I need to find a decent solicitor who understands tax and inheritance issues and also consult my IFA. I need to have Plan B set up so that if anything were to happen in, say, the next decade, I have options. I've worked hard in anticipation of a good retirement. My friend, the one who warned me not to sink money into the garage development has told me to insist on marriage or else. We'll see.

@Bouffe but marriage does not necessarily mean you get the house! We are married and my H will not get the house. We have a pre nup and wills to that effect.

IHT.

My BIL has right of residence in MIL's old house but it was still assessed for inheritance tax when she died. Luckily (for him) the valuation fell just a few pounds below it or it would have had to paid and he had no way of doing so and would have looked to us to pay it

@SapatSea I’m guessing that he benefited from the estate though? The OP wouldn’t be liable to pay the IHT if she only has a life interest in the house, his beneficiaries would (his children). It could potentially put them in a crappy position if there’s not enough available cash to pay it though.

Yes: I had hoped to be able to divest myself of some of my capital by giving my niece and nephew £75k each and trying to survive the seven years required.